Private Equity Antitrust Lawsuit Goes Forward
March 14, 2013 A federal judge refused to dismiss a lawsuit accusing private equity firms of colluding to lower the prices of deals during the buyout boom, paving the way for a possible trial, DealBook’s Peter Lattman reports. At the same time, though, Judge Edward F. Harrington of Federal District Court in Boston narrowed the lawsuit in his ruling on Wednesday, suggesting that the case was too broad and had serious flaws.
Both sides found a reason to celebrate the decision. “We are pleased the court has decided that there is no evidence of the overarching conspiracy plaintiffs have pursued for five years,” said Kristi Huller, a spokeswoman for Kohlberg Kravis Roberts, one of the firms named in the suit. A lawyer for the plaintiffs, who are former shareholders of the businesses acquired by the buyout firms, had another view. “The plaintiffs are very gratified that the court has found that there is clear evidence of the overarching conspiracy,” said the lawyer, K. Craig Wildfang.
The plaintiffs claim that 11 big private equity firms participated in a plot to rig the market for more than two dozen multibillion-dollar takeovers, shortchanging shareholders. The accusations center on “club deals,” in which buyout firms pooled their money to buy companies together. The complaint was filed in 2007 after the Justice Department, which has not brought any charges, began investigating possible price-fixing.
While the judge decided there was enough evidence for the case to survive the private equity firms’ motion to throw it out, he essentially agreed with the thrust of the private equity firms’ argument. “Even where the evidence suggests misconduct related to a single transaction, there is largely no indication that all the transactions were, in turn, connected to a market-wide agreement,” Judge Harrington wrote. “Rather, the evidence shows a kaleidoscope of interactions among an ever-rotating, overlapping cast of defendants as they reacted to the spontaneous events of the market.”
SQUEEZING OUT CASH AFTER AN EXIT | “When the Berry Plastics Group, a container and packaging company, went public last October, it generated up to $350 million in tax savings. But the company won’t collect the bulk of the benefits. Rather, Berry Plastics will hand over 85 percent of the savings, in cash, to its former private equity owners,” Lynnley Browning reports in DealBook. “The obscure tax strategy is the latest technique that private equity firms are using to extract money from their companies, in this case long after the initial public offering.”
“Buyout specialists are increasingly collecting continuing payouts from their former portfolio companies. The strategy, known as an income tax receivable agreement, has been quietly employed in dozens of recent offerings backed by private equity, including those involving PBF Energy, Vantiv and Dynavox. While relatively rare, the strategy, referred to as a supercharged I.P.O., has proved to be controversial. To some tax experts, the technique amounts to financial engineering, depriving the companies of cash. Berry Plastics, for example, has to make payments to its one-time private equity owners, Apollo Global Management and Graham Partners, through 2016.”
VICTORY FOR INVESTOR IN SANDRIDGE FIGHT | SandRidge Energy reached a settlement deal with TPG-Axon Capital Management, a hedge fund that had been pushing for the removal of the oil company’s chairman and chief executive, Tom L. Ward, DealBook’s Michael J. de la Merced reports. SandRidge said it would expand its board by four seats determined by the hedge fund, adding that it would decide by June 30 whether to remove Mr. Ward. If SandRidge does not fire the chief executive, three of the existing directors will step down and TPG-Axon will name an additional board member, giving the investor majority representation on the board. “Wednesday’s announcements represent a striking victory for TPG-Axon, which had questioned a series of land deals that SandRidge had made with Mr. Ward and his family,” Mr. de la Merced writes. “The hedge fund had also criticized SandRidge for a series of strategic mistakes, leading to a nearly 29 percent decline in the company’s stock price over the last 12 months.”
ON THE AGENDA | The Federal Reserve is expected to announce at 4:30 p.m. which banks have the ability to return money to shareholders. A House Financial Services subcommittee conducts a hearing at 10 a.m. about an assessment by the Government Accountability Office of the Financial Stability Oversight Council and the Office of Financial Research. The producer price index for February is out at 8:30 a.m. Sallie L. Krawcheck, former head of Bank of America’s wealth management division, is on Bloomberg TV at 8 a.m. Jeffrey C. Sprecher, chief executive of IntercontinentalExchange, is on CNBC at 3 p.m. Jacob L. Lew, the Treasury secretary, is on Bloomberg TV at 4:15 p.m. Sheila C. Bair, former chairman of the Federal Deposit Insurance Corporation, is on CNBC at 4:30 p.m.
DIMON AT THE WHITE HOUSE | Are hackers playing a role in healing Jamie Dimon’s relationship with President Obama? The JPMorgan Chase chief executive, who turned in recent years from being an ally of the Obama administration to a vocal critic, was among 13 chief executives who visited the White House on Wednesday to discuss cybersecurity, the Bits blog writes. JPMorgan had been attacked by foreign hackers as recently as Tuesday. Brian T. Moynihan of Bank of America was also among the invitees.
SPINOFF OF TIME INC. UNNERVES EMPLOYEES | Richard Stengel, Time Magazine’s managing editor, acknowledged that it was “sort of put up or shut up time” for Time Inc., which is set to split off from its Time Warner after talks with the Meredith Corporation fell apart. “I think great, let’s really test that hypothesis that people will pay for great content and great journalism. We can now invest our own capital,” he said, Christine Haughney reports in The New York Times. The new company faces some challenges, as circulation and advertising revenue have declined. It is expected to start with $500 million to $1 billion in debt.
Several current and former employees spoke of unease at the magazines, Ms. Haughney writes. “Morale dipped dramatically when the layoffs occurred just a couple of months ago,” a former company executive who is still in touch with many employees said.
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